Preferential tax rate under VATA
The following article summarizes the rules governing the preferential rate under the Value Added Tax Act (VATA) and the cases where it is applied.
Pursuant to Art. 66 (2) VATA, the reduced rate of 9% applies to accommodation provided at hotels and similar establishments, including the provision of vacation accommodation and letting out of places for camping sites or caravan sites. That is, for the preferential rate to apply, it is necessary for the subject of supply to be accommodation.
In defining the terms, § 1, item 37 VATA should be taken into consideration, according to which "tour operator", "travel agent" and "main tourist services" mean those under the Tourism Act (TA), regardless of whether the tour operator or travel agent has been registered in accordance with the procedure provided for by the TA.
The Act defines some other main terms. According to § 1, item 37a of the Supplementary Provisions (SP) of VATA, a "traveler" means any person who is the recipient of a single service to tourists which is not acquired for the purpose of subsequent sale. This term broadens the scope of end users of touristic services, making it available not only to natural persons but also to legal entities.
According to § 1, item 8 SP of TA, "tour operator" is a person registered according to the procedure established by the Act to practice tour operation, which consists of organizing group and/or individual tours at an inclusive price, and the sale of journeys, whether directly and/or through a travel agent for the purposes of tourism, leisure, entertainment, business, participation in cultural or sightseeing events, congress and business events, or other purposes.
According to § 1, item 45 SP of VATA, "accommodation" means basic tourist services in the meaning of sub-paragraph 12 SP of TA with the exception of the supply of a single service by a tour operator to a traveler.
According to § 1, item 12 SP of TA, "basic tourist services" are overnight accommodation and meals, as well as transport services. According to Art. 136 VATA, the provision by a tour operator , acting in his own name, of goods or services in connection with the journey of a traveler, for the carrying out of which goods or services for the direct benefit of the traveler are used, shall be treated as a supply of a single service to tourists.
Scope of the preferential tax rate
Given these definitions, in order to charge the hotelier or another person who provides the service to the tour operator with a 9% value added tax, the latter must organize tourist travels within a single service for a single price, which should include any of the following combinations of services: accommodation and transport services; accommodation and catering; accommodation, catering and transport services. Therefore, the tourist service provider can take advantage of the preferential tax rate when they provide accommodation (required) and in addition to that catering and/or transport.
In practice, several questions often arise:
Can one apply a preferential rate if one also offers services such as: parking, safe, lounge, pool, gym, spa treatments, surfing, tennis, water bike, animation etc. The answer is that it is possible, but only if those services are an incidental transaction within the meaning of Art. 128 VATA, where the principal supply is accompanied by another supply and the payment is determined as a total where the main payment is to be determined jointly. It is also necessary that such services are made available to all travelers who purchased the package, regardless of whether or not they are consumed by individual travelers and provided directly by the hotelier, not by assignment to third parties and only within the territory maintained by the same. That is, when a hotel offers such services as extras to bed and breakfast deals, for example, the reduced rate applies to the entire package, not only to the basic services. Thus hotels can pay lower taxes if they offer the "all inclusive" service to travelers.
Consequently, where these services are provided to a hotelier by third persons, the suppliers charge a 20% tax thereon.
When are transportation services subject to the 9% tax rate?
The answer is, only when they are carried out by the hotelier using own transport vehicles (including hired such). A common misconception is that the transport of passengers to and from the hotel provided by third persons is subject to the provisions regulating international passenger travel (Art. 29 VATA). The applicable rate in this case, however, is 20% as there is a supply with a place of implementation within the territory of the country.
The question whether a preferential rate could apply to beverages has a clear answer - yes, because within the meaning of Art. 2 (2) of the Food Act, beverages can count as food.
The place of supply of services is the place where the immovable property is situated, including accommodation at hotels, camping sites, caravan parks, holiday camps and others of that type (the place of accommodation) - Art. 21 (4), item 1 VATA.
Determination of the taxable event and basis of taxation
The date of occurrence of the taxable event is determined in accordance with Art. 25 (2) VATA - it is the date on which the service was performed. If multiple services are provided, no separate date of occurrence of the taxable event is determined.
If advance payments are received before the date of occurrence of the taxable event, the same are charged with 9% tax, regardless of whether the person providing the service possesses the documents required under Art. 40 RAVATA to prove the supply.
The basis of taxation of the service under Art. 66 (2) VATA is determined according to the general order under the Act (Art. 26).
The tax is chargeable on the person providing the service, registered under VATA. The tax is due for the period of taxation during which the tax document was issued, and in those cases where such has not been issued - the tax period during which the tax has become chargeable (advance payment and occurrence of the taxable event).
The right to tax credit exists for supplies meant for subsequent supplies under Art. 66 (2) VATA. The general provisions under the Act governing the tax credit apply.
When the recipient of the supply is a tour operator, they are not entitled to a tax credit if the service provided (accommodation) is used for the supply of a basic tourist service within the meaning of VATA. If the same uses the supply for a supply taxable within the general order under the Act, then the tax credit is available to them.
For the purposes of proving the supplies, the supplier must the documents listed in Art. 40 RAVATA. These are a document certifying that the accommodation is part of a package tour; a copy of the register of accommodated tourists; a certificate of category of the tourist place; an invoice on the supply, except for the cases where issuance thereof is not compulsory under Art. 113 (3) of the Act.